Entries in unfunded liabilities (5)


Massive unfunded pension liabilities: political malfeasance?

The absolute fraud of pension accounting of unimaginable scale. Citizens and businesses need to understand this is a massive generational transfer of liabilities. Current benefits have neither been adequately funded nor accounted for. They have been essentially hidden... and abused. Willful political malfeasance?

“Despite the introduction of new accounting standards, the vast majority of state and local governments continue to understate their pension costs and liabilities by relying on investment return assumptions of 7-8 percent per year. This report applies market valuation to pension liabilities for 649 state and local pension funds. Considering only already-earned benefits and treating those liabilities as the guaranteed government debt that they are, I find that as of FY 2015 accrued unfunded liabilities of U.S. state and local pension systems are at least $3.846 trillion, or 2.8 times more than the value reflected in government disclosures. Furthermore, while total government employer contributions to pension systems were $111

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Aggregate funded and unfunded liabilities of the states divided by the number of taxpayers

We came across The 2013 Financial State of the States and wanted to bring broader attention to it. The report addresses the scale of the problem of unfunded liabilities of state pensions & other retirement benefits. Recall these amounts are typically off balance sheet items, unseen & poorly understood by the public, and therefore a great source of financial & fiscal abuse by politicians. They are very real and large.

Below is an estimate of the scale of the aggregate problem: you can see that only $195 billion of the estimated $1.1 trillion of liabilities are actually reported on states’ balance sheets. So how is a citizen to know? Well, the intent was that citizens were not supposed to know and that’s the point of abuse. The deception has largely been successful:

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No mas! I’ll take #1, Monty!

Updated on Wednesday, June 15, 2011 at 08:51AM by Registered Commenterhb

"Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats." — H.L. Mencken (Prejudices: First Series)

We have arrived. We encourage other citizens and investors to arrive as well. We call for no increase whatsoever in the federal debt limit. We call for scheduled real reductions in the aggregate consumption by state, local, and federal government of GDP.  We believe that we are nearing the point where time is of the essence  and further believe in the necessity of enlisting the discipline of the capital markets to achieve that objective.  If the political circumstances require a technical or substantive default to invoke the discipline of the capital markets, so be it.

No more kicking the country’s can down the road. Fix it now. This posting has been simmering for a while, and the catalyst for publication, perhaps prematurely so, was Larry Summer’s article in the June 13th edition of the Financial Times, How We Can Avoid Stumbling Into Our Own Lost Decade.  His thesis, reductively put, is an infinite do-loop,

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The USA as a business: say it with pictures

Kudos to Ms. Mary Meeker and her firm, Kleiner Perkins Caufield & Byers. They have done a public service by putting together a comprehensive analysis, USA Inc., that tries to answer the question, "What if we looked at our country as a business and applied some related analytics & disciplines?"  I only wish it had gotten more visibility.

Some of the analysis is compelling, and stunningly, much of this basic data is simply not surfacing from the imbecilic cacophony of mugwumps in media, policy or politics. We can understand why the politicians don't want these pictures to see the light of day. Broad understanding would reveal the great unpleasantness and failure of political leadership that brought us here. They communicate quite clearly what our problems are.

Entitlements alone consume nearly all revenue, and it will get dramatically worse going forward:



Our balance sheet is fraudulent in that it does not disclose all liabilities. When we put those liabilities on the balance sheet we become book insolvent. So the next time a politician says the words "trust fund" make sure that he means that an independent, non-governmental third party trustee will hold the funds for your benefit.




And our debt outstanding only reflects what's the on balance sheet!  Through the wisdom of governmental accounting orange stuff above isn't reported as a real obligation on the balance sheet! In the private sector this omission would be garden variety 10(b)(5) fraud but as Marilyn Monroe once said, "It's different for girls..." so when you start thinking about the debt crisis, don't forget to put the orange stuff on the balance sheet.  The omission is a fraud: a game of 'Hide the ball' that government has played so long. Game over.

 Lastly, while we're spending a lot on defense it does not appear to be out of line historically.



Spend some time with the study & share it with fellow citizens. I'm not buying into all the recommendations as some obvious private sector solutions have been given short shrift (more on that later), but defining the problem is a first step to solving anything.

For context of the magnitude of this problem consider that: 

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits

And folks, that's the home team voting with their feet.


The small matter of unfunded state & municipal pension liabilities

The fraud of Social Security becomes the fraud of General Motors becomes the fraud of California and moves soon to a theatre near you. Owners of municpal paper take note.

The FT today reports US cities face big public pension deficits excerpted below.

Big US cities could be squeezed by unfunded public pensions as they and counties face a $574bn funding gap, a study to be released on Tuesday shows.

The gap at the municipal level would be in addition to $3,000 bn in unfunded liabilities already estimated for state-run pensions, according to research from the Kellogg School of Management at Northwestern University and the University of Rochester.

Now how could that have happened?

Thematically, its the same old stuff.  Shall we take a little flashback to General Motors? Kudos to Tony Jackson of the Financial Times for his article GM is just a hedge fund in disguise (Aug 22, 2010 also excerpted below).

As public offering for GM rev’s up, one might well ask, “How is this going to work?” Well, it’s not going to. The US government, or rather the current & future US taxpayers, have provided us with another opportunity to short a pig. Let’s set aside the sobering competitive reality that we as consumers already know well. No one buys their cars. That’s why they went bust. Let’s further set aside the sobering global competitive threats of Ford, Honda, Toyota, and Hyundai.

GM has pension liabilities of some $100 billion, funding of which is well, running a bit short. Quelle surprise! The stated deficit of some $27 billion bananas is, of course, based on the assumption that the existing pension assets earn 8.5% for the rest of time in eternity AND that GM operates with sufficient profitability and cash flow to fund its pension expenses and everything else.

Well, good luck with that 8.5%. What…? You need a bigger number, no problem? Just pop the asset mix and up risk a bit. Why not? 

The reality of all this is that GM…is in economic terms a hedge fund, with its operations a mere sideline. And as a hedge fund, it is fairly racy.

Mr Ralfe calculates that only 35 per cent of its assets are in investment-grade bonds, either Treasury or corporate. The rest is spread across real estate, equities, hedge funds, private equity and so forth.

This poses an interesting question. Why would investors put their money into GM, rather than into regular hedge funds that are not distracted by the vexing business of selling cars in competition with the giants of Asia?

Oh, good. But wait, there’s more. The first half operating earnings of GM were about $2.9 billion (the highest since 2004) so let’s double it to ballpark 2010’s annual operating earnings, well, call it a little less than $6 billion. Let’s set aside the hockey stick earnings forecast by management and soberly assume that the 8.5% sustainable investment return on the pension assets is overly aggressive, at least at the front end of the period. GM then has to dedicate at least all of its operating earnings for the next 6-8+ years minimum to merely funding the pension liability. Forget about growing warranty expense or debt service or funding unsold inventory. Kaboom! We’re all shareholders on this bus.

Now, let's now move our gaze to California which is now in a funding crisis, acutely short of cash with limited financing options...  all dressed up, sitting by the phone at 7 pm on prom night. CALPERS, being helpful sympathetic types, lob in a call. They know a good deal when they see it, the opportunity to buy every politician in the state with make a prudent bridge loan to a large politically & economically important state whose pensions they run.  CALPERS is, of course, the California Public Employee’s Retirement System. They’re proposing to lend to the state. The cash, of course, comes from the pensions of the state's employees.  Oh, did we mention that many of the CALPERS' pension plans have funding deficits also? Something about understated liabilites and under performance of investment assets…

 Flash back to GM: GM’s annual payments to its US pensioners are running at $9.3bn. On US fund assets of $85bn, that ostensibly requires a return of 10.9 per cent.

Flash back to the Social Security trust fund: there is no social security trust fund.

Systemic risk, anyone?